Apple: Time To Come Out Swinging

Portrait of Steve Jobs (Matt Yohe/Wikimedia Commons)

The dominant picture of Apple in the media today is of a company on the ropes: out of ideas, falling behind the competition, stock price battered, doomed. It’s reached the point where the CEO of BlackBerry, of all people, is criticizing the iPhone as stale.

The reality is a company enjoying record sales and earnings, dominant in its most important markets, with products continuing to be the envy of customers and competitors alike.

How did a company that spent so many years successfully managing and polishing its image reach this point? And how does it change a growing perceptions of failure in the face of actual success? These questions matter because over time, perceptions have a way of infiltrating reality, making the negativity surrounding Apple a long-term threat to the company.

Apple has succeeded by figuring out what consumers want before they knew they wanted it and by making superior products. But a little bit of magic has surrounded Apple products for the past 15 years or so and that helped make iPods and MacBooks and iPhones objects of desire. Today, every major Apple product is the top seller in its category, often by a wide margin. But without the perception of magic, that becomes harder to sustain.

This is where Apple misses Steve Jobs. Today’s Apple is run by a highly competent crew of executives. But Jobs was the magician and no one can replace him. A Tim Cook keynote can be interesting and informative, but it will never be the sort of cosmic event that Jobs presided over two or three times a year. This loss is irreplaceable.

But something else has changed. For the first time in many years, and certainly for the first time since the incredible iPhone run began in 2007, Apple has a competitor that truly matters. When Apple entered the phone market in 2007, it gained about 100% of the mindshare before shipping a product. Once the iPhone was a reality, and especially after the iPhone 3G and the App Store debuted a year later, Apple brushed away the incumbent smartphone makers without them putting up much of a fight.

Samsung is different. The company is nowhere close to Apple’s seamless integration from components to software and the dog’s breakfast that was the Galaxy S 4 launch shows it still has a ways to go in its presentation skills. But it is making first-rate products that are more and more Samsung and less and less Android, and backing them with a lot of money behind an effective marketing campaign. If Samsung ever learns how to overcome Google’s tablet cluelessness, it could be a formidable competitor to the iPad too.[pullquote]If Samsung ever learns how to overcome Google’s tablet cluelessness, it could be a formidable competitor to the iPad too.[/pullquote]

With Samsung on the prowl and Apple, fairly or unfairly, getting beaten up daily by both the tech and financial media, the company can no longer afford its long-time strategy of floating serenely about the noise of the tech and financial worlds. Apple never responded to rumors or much of anything else. Routine inquires to PR staff received polite no comments or, often as not, no response at all. Apple was the honey badger of tech companies. That strategy has served it well for more than a decade, but it clearly is not working very well anymore.

One thing Apple should strongly consider is giving the world some sense of its direction. Rampant speculation about Apple products while Cupertino sat in stony silence used to work in Apple’s favor, but now its being interpreted as having a lack of anything to say. Critics will say Jobs would never have considered even giving hints about products in development, but Jobs was against many things–including Apple making a phone–until he found a good reason to be for them. “What would Steve do?” is not a good guide for Apple today. The company should let the world know that it is still on top of its game.

Apple also needs to throw a bone the the financial markets. With a cash hoard is more than $150 billion and growing, Apple is beginning to look a bit like a bond fund with a consumer electronics company attached. It successfully fought off an effort by investor David Einhorn to give a good chunk of the money back to shareholders, but it has given no indication of what it plans to do, but there’s a good argument to be made that all that cash sitting around is doing investors no good whatever. It could, as Brian S. Hall suggested here the other day, set up an endowment for future product development. More realistically, it could pay a much larger dividend or use the cash to buy back its own stock. It could find something worth acquiring (maybe it’s saving up to buy Samsung, but it needs about another $100 billion.) But one way or another, it owes investors some explanation of its intentions if it hopes to win their confidence back.

There are some signs that Apple understands it is in a new environment. It has come up with a new section of its web site, going after the competition saying: “There’s iPhone. And then there’s everything else.” Marking chief Phil Schiller took on Samsung in an interview on the eve of the Galaxy S 4 launch (though he diluted its impact with an incorrect claim that the phone used a year-old version of Android.) Such steps are a good start, but Apple will have to do more. It’s a difference, and much more competitive world out there.

What Really Scares Apple’s Competitors

I was recently talking with some of Apple’s competitors and they gave me some interesting feedback on how they feel about Apple. The first thing they told me is that they really respect Apple and find them to be very important to the industry in general. And to a company, they feel an exceptional team of leaders runs Apple and they fully expect Apple to have a leadership role in PCs, tablets and smartphones for many years, even with Steve Jobs out of the picture.

But when I asked them what they actually fear about Apple, their answer was interesting. I had expected them to say things like Apple has great industrial design. Or their $117 billion cash position gives them a huge advantage over all competitors. Or even that since Apple owns their hardware, software and services, they can make them work together seamlessly, which also gives them a huge advantage over competitors.

But the consensus from those I talked to about what really scares them about Apple is the fact that Apple sees the future and then creates products that people want even if people do not know they want them. This has befuddled them for 15 years or since Steve Jobs came back in 1997 to rescue Apple. Most of the OEMs create their products along a more evolutionary timeline. They create new desktops, laptops, smartphones and even tablets with the idea of just making them faster and better looking.

But Apple takes a very different line of attack. They approach their future products in two ways. The first thing they do is to look at an existing product and find its flaws. Then they redesign it around what they believe consumers want and then tie it to advanced software and services to eventually create complete solutions. This is the cause of Apple’s competitor’s first fears about Apple and having to compete with them.

For example, first thing they did this with was the iPod. Apple did not invent MP3 players. But they looked at the early versions and realized its flaws. The first generations of MP3 player designs were less than interesting and the process of getting music on to them was difficult. So they figured that they could add their industrial design magic to it and build an ecosystem of software and services that made buying and playing music and eventually video simple to do so that today they still own 70% of the MP3 player market. After 11 years on the market they still don’t have a serious competitor in this space.

They did something similar with the iPhone. They did not invent smartphones, but they reinvented them with the iPhone and have made this smartphone one of the most popular in the world today. Of course, this market is so big that competitors came in very quickly and thanks to Android, the competition for smartphones is fierce. But Apple led the way and continues to be a most important competitor.  I fully expect their new iPhone 5 to set sales records when it comes out in Sept.

The iPad followed a similar path. They did not invent tablets. In fact, Microsoft was the lead player in this space until Apple reinvented the tablet with the iPad in 2010. But here again, Apple applied great industrial design to their tablet, tied it to their ecosystem of hardware and software and currently maintain a 70% market share in tablets.

But there is a second way Apple approaches the market that really strikes fear in them. Steve Jobs had what has often been called a “gut feel” for what consumers wanted in a tech product and would envision them years before the products would even come out. When I met with Steve Jobs the second day he came back to Apple in 1997, Apple was in deep financial trouble and we now know they were about two months away from going bankrupt. I asked him how he would save Apple and he told me that he would focus meeting the needs of their core customers and then added that he would focus on industrial design.

The idea of industrial design being important to saving Apple was foreign to me and I really could not see how that would work. But two years later he brought out the candy colored iMacs and reset peoples thinking about what a computer could or should look like. Then he focused in creating all-in-one Mac’s and made sleek design key to this and all of his next generation laptops.

Apple also saw the future of laptops well before the competitors and added their industrial design magic to the MacBook Air. Now, five years after the MacBook Air first shipped, the PC competitors are just now bringing out similar types of ultra thin and light laptops called Ultrabooks.

It is this anticipation of what people will want in a tech product and Apple’s ability to not only see the future and then create the products people want even if they don’t know they want or need them that makes life difficult for those who compete with them. Even while the rumors fly about Apple’s next major reinvention, which most likely will be the interactive TV experience, it would not surprise me if the folks at Apple have peered into their crystal ball and are working on something really cool in some area of technology none of us have even thought of today. Having to live with this type of threat from Apple is what keeps their competitors up at night and always looking over their shoulder as Apple leads and they are forced to follow.